Pilot bonds to fund social projects

Pilot bonds to fund social projects
Sarah Townsend, Regeneration & Renewal

The model, called a social impact bond, has been proposed by third sector consultancy Social Finance and would work through a contract between the Government and a service provider – generally a third sector organisation.

The provider pledges to deliver an agreed target outcome, such as reducing the number of young people that are not in education, employment or training in an area by a third. Investment from the private sector to help the organisation run services is then raised on the back of that contract.

The Government would make a payout to bond holders based on the success of the project and investors would make a return if the project exceeded its targets.

Gordon Brown announced the pilot in a speech last week. He said: ‘Social impact bonds will reward investors for work that reduces future social costs.’

Toby Eccles, founder of Social Finance, said that the body is working with the Department for Communities and Local Government to deliver a pilot to assess the feasibility of using social impact bonds to reduce the length of stay in hospital required by elderly people and so cut the costs for primary care trusts.

He added that Social Finance is also holding discussions with the Ministry of Justice over the possibility of launching a similar pilot which would be aimed at reducing reoffending rates.

Eccles said: ‘We are looking at areas of activity where there is the potential for an alternative way of doing things that would achieve better social outcomes and reduce the costs to Government.’

But Campbell Robb, outgoing director general of the Office of the Third Sector, warned last month that social impact bonds may not attract investment.

He told a conference: ‘Social impact bonds focus on outcomes, not on indications that a service might be successful in the long term. It takes years to measure the success of a social project and investors might not trust it was going to be of value.’